Tuesday, 12 May 2015

2015 Federal Budget

I mentioned in my review of last year's budget that Joe Hockey is not the nation's greatest orator. This hasn't changed.

What has changed, however, was the tone of the budget.

Last year, the Treasurer announced a Budget that threatened cuts to core services, changes to the way education and health services were to be charged, and shook the confidence of the Australian economy.

I say threatened, because the Government severely misjudged the mood of the Senate, and much of the more significant legislative changes were never passed. Think of the reforms to the charging of Higher Education fees, or the GP co-payments, or the pensioner benefits. Also, the over-the-top parental payment scheme concocted by the Prime Minister. That was watered down and then quietly shelved as the Senate blocked that as well.

All of these proposed measures were to counter the supposed Budget emergency that the Government had been going on and on (and on and on and on) about for the last couple of years.

Since the last Federal Budget the unemployment rate has gone up, tax revenues have fallen, the Budget deficit has increased and the country has only enjoyed a very modest rate of economic growth.

So, what is the message from tonight's Budget? Apparently the Budget emergency has gone. It's all about spending tonight. Spending to a select few, anyway.

Why has there been a full reversal in the message by the Government over the last 12 months?

Part of it is political. The Senate is still hostile to the Government and wont deal with any more nasty surprises, like last year's Budget.

I think part of it is that the Liberal Party has lost so much credibility with the voters in the last Budget that it was looking like a one term Government. A lot of the new spending initiatives here is to shore up its voter base in preparation for the next Federal Election.

I think a part of it is that Joe Hockey was made to look like a total fool after the last Budget and he needed to pull a rabbit out of the hat in order to ensure he stayed on as Treasurer leading into the next election. I think he has almost achieved this.

So, what are the big announcements (and the smaller ones that didn't get air time)?

Small Business Taxation

  • The key measure announced was an upfront claim by Small Businesses on all plant and equipment purchased up to $20,000. This is available for any purchases from tonight, and over the next two years (I assume this means up until 30th June 2017). In this instance a Small Business means a business with turnover of less than $2 million per year. Any existing Depreciation Pool with a balance of less than $20,000 will also be allowed to be written off in the year it occurs.
  • From 1 July 2015 the company tax rate for Small Business will be reduced from 30% to 28.5%. Importantly, the franking rebate will remain at 30%.
  • For unincorporated Small Businesses, the rebate is much more modest and will top out at $1,000 per annum. This is almost going back the small business rebate from a couple of years ago, but with a much more generous turnover threshold ($2 million v $75,000). For a lot of Small Businesses that operate under trust structures, it is unclear as to how this rebate will actually work. Stay tuned for the fine details on this.
  • From 1st July 2015 all legal and other establishments costs for setting up a new Small Business will be tax deductible, rather that written off over 5 years.
  • From 1st July 2016, Small Business will not have to worry about capital gains tax when looking to change structures. A note of warning here. This area of tax law is pretty messy, and I am not expecting this to improved in any substantial way. I'll await the details before commenting further.
  • For primary producers, there will be significant changes to the way purchases for fencing, fodder storage and water facilities (dams, water tanks etc), from 1st July 2016.
  • From 1st April 2016 the rules relating to fringe benefits and electronic mobile devices will be relaxed. Currently the exemption effectively only applies to one mobile device per person,

Personal Taxation

  • If you are an employee of a non-for-profit (including hospitals) and you have been able to salary package you meals and entertainment you are going to be in a rude shock. The threshold for this will reduce to $5,000 from 1st April 2016 (down from $31,177 for not-for-profit employees and $17,667 for hospital employees). 
  • Motor Vehicle deductions for employees will be simplified from 1st July 2015. And by simplified, I mean reduced. Currently there are four different methods for calculating motor vehicle tax deduction. Two of these (the 12% of cost rule and the 1/3 of actual costs rule) will be abolished. The cents per kilometre rate will be reduced to one rate only of 66 cents per kilometre. Bear in mind that in 2014 tax returns the rates were as high as 77 cents per kilometre. The log book method will still be able to be used.
  •  There will be the removal of zone rebates for those workers who fly in-fly out in remote areas of Australia.

Other Areas

  • There have been some significant changes announced in the Budget for the way the Child Care benefits will be calculated. I wont cover this here as a) the new measures wont kick in for a few years and b) I don't think it is likely the Senate will pass them.
  • There has also been an announcement of the removal of "double dipping' by parents able to access the Parental Leave Pay Scheme. Whilst the government is hoping of significant tax savings here I also think this will have difficulty in passing the Senate.
  • $131 million has been provided to the tax office to improve their digital services. A lot of this is to improve their MyTax site, allowing taxpayers to lodge tax returns online without needing to go through tax agents. (Theoretically.)
  • From 1st July 2017, offshore suppliers of services to Australians (such as Netflix) will be required to charge GST on their services. I am not entirely sure how this will be implemented.
  • The Treasurer has indicated that superannuation laws will not be changed during the term of this current government. After the next election, all bets are off.

My Reaction

If you ignore the political rhetoric and attempted point scoring by this Treasurer and the Government, it's difficult to know what economic rationale there is for having such two different Budgets from 2014 and 2015. Tax breaks are always welcome, and no small business owner will ever knock back the opportunity to reduce the amount of tax they are required to pay. Having said all that, I don't think this Budget really will achieve anything economically for the country, nor will it do anything for the Government other than to sure up its political base.

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